Chapter 23 Performance Evaluation Using Variances from Standard Costs Student: _ A variable cost system is an accounting system where standards are set for each manufacturing cost element True False One reason not to depend solely on historical records to set standards is that there may be inefficiencies contained in past costs True False Standard costs serve as a device for measuring efficiency True False The standard cost is how much a product should cost to manufacture True False Standard costs can be used with both the process cost and job order cost systems True False Cost systems using detailed estimates of each element of manufacturing cost entering into the finished product are called standard cost systems True False Cost systems using detailed estimates of each element of manufacturing cost entering into the finished product are called budgeted cost systems True False Normally standard costs should be revised when labor rates change to incorporate new union contracts True False Standard costs should always be revised when they differ from actual costs True False 10 Financial reporting systems that are guided by the principle of exceptions concept focus attention on variances from standard costs True False 11 In most businesses, cost standards are established principally by accountants True False 12 It is correct to rely exclusively on past cost data when establishing standards True False 13 Ideal standards are developed under conditions that assume no idle time, no machine breakdowns, and no materials spoilage True False 14 Currently attainable standards not allow for reasonable production difficulties True False 15 If employees are given bonuses for exceeding normal standards, the standards may be very effective in motivating employees True False 16 The fact that workers are unable to meet a properly determined direct labor standard is sufficient cause to change the standard True False 17 Changes in technology, machinery, or production methods may make past cost data irrelevant when setting standards True False 18 The difference between the standard cost of a product and its actual cost is called a variance True False 19 Standards are performance goals used to evaluate and control operations True False 20 Standards are set for only direct labor and direct materials True False 21 Principle of exceptions allows managers to focus on correcting variances between standard costs and actual costs True False 22 Because accountants have financial expertise, they are the only ones that are able to set standard costs for the production area True False 23 While setting standards, the managers should never allow for spoilage or machine breakdowns in their calculations True False 24 A budget performance report compares actual results with the budgeted amounts and reports differences for possible investigation True False 25 A favorable cost variance occurs when actual cost is less than budgeted cost at actual volumes True False 26 An unfavorable cost variance occurs when budgeted cost at actual volumes exceeds actual cost True False 27 Standards are designed to evaluate price and quantity variances separately True False 28 If the standard to produce a given amount of product is 2,000 units of direct materials at $12 and the actual was 1,600 units at $13, the direct materials quantity variance was $5,200 favorable True False 29 If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials quantity variance was $2,200 unfavorable True False 30 If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials price variance was $800 unfavorable True False 31 If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials price variance was $800 favorable True False 32 If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials quantity variance was $1,000 unfavorable True False 33 If the standard to produce a given amount of product is 600 direct labor hours at $17 and the actual was 500 hours at $15, the time variance was $1,500 unfavorable True False 34 If the standard to produce a given amount of product is 600 direct labor hours at $15 and the actual was 500 hours at $17, the time variance was $1,700 unfavorable True False 35 If the standard to produce a given amount of product is 600 direct labor hours at $15 and the actual was 600 hours at $17, the rate variance was $1,200 unfavorable True False 36 If the standard to produce a given amount of product is 500 direct labor hours at $15 and the actual was 600 hours at $17, the rate variance was $1,200 favorable True False 37 Standard costs are determined by multiplying expected price by expected quantity True False 38 The direct labor time variance measures the efficiency of the direct labor force True False 39 The variance from standard for factory overhead cost resulting from operating at a level above or below 100% of normal capacity is termed volume variance True False 40 The variance from standard for factory overhead resulting from incurring a total amount of factory overhead cost that is greater or less than the amount budgeted for the level of operations achieved is termed controllable variance True False 41 The most effective means of presenting standard factory overhead cost variance data is through a factory overhead cost variance report True False 42 Since the controllable variance measures the efficiency of using variable overhead resources, if budgeted variable overhead exceeds actual results, the variance is favorable True False 43 An unfavorable volume variance may be due to a failure of supervisors to maintain an even flow of work True False 44 Favorable volume variances are never harmful, since achieving them encourages managers to run the factory above normal capacity True False 45 Volume variance measures fixed factory overhead True False 46 Though favorable volume variances are usually good news, if inventory levels are too high, additional production could be harmful True False 47 Standard costs are a useful management tool that can be used solely as a statistical device apart from the ledger or they can be incorporated in the accounts True False 48 At the end of the fiscal year, the variances from standard are usually transferred to the finished goods account True False 49 Standard cost variances are usually not reported in reports to stockholders True False 50 Standards are more widely used for nonmanufacturing expenses than for manufacturing costs True False 51 Non-financial measures are often lined to the inputs or outputs of an activity or process True False 52 A company must choice either a standard system or nonfinancial performance measures to evaluate the performance of a company True False 53 Nonfinancial performance output measures are used to improve the input measures True False 54 An example of a nonfinancial measure is the number of customer complaints True False 55 A company should only use nonfinancial performance measures when financial measures cannot be calculated True False 56 Which of the following conditions normally would not indicate that standard costs should be revised? A The engineering department has revised product specifications in responding to customer suggestions B The company has signed a new union contract which increases the factory wages on average by $5.00 an hour C Actual costs differed from standard costs for the preceding week D The world price of raw materials increased 57 Standards that represent levels of operation that can be attained with reasonable effort are called: A theoretical standards B ideal standards C variable standards D normal standards 58 Standard costs are used in companies for a variety of reasons Which of the following is not one of the benefits for using standard costs? A Used to indicate where changes in technology and machinery need to be made B Used to identify inventory C Used to plan direct materials, direct labor, and factory factory overhead D Used to control costs 59 The principle of exceptions allows managers to A focus on correcting variances between standard costs and actual costs B focus on correcting variances between variable costs and actual costs C focus on correcting variances between competitor’s costs and actual costs D focus on correcting variances between competitor’s costs and standard costs 60 Periodic comparisons between planned objectives and actual performance are reported in: A zero-base reports B budget performance reports C master budgets D budgets 61 The standard price and quantity of direct materials are separated because: A GAAP reporting requires this separation B direct materials prices are controlled by the purchasing department, and quantity used is controlled by the production department C standard quantities are more difficult to estimate than standard prices D standard prices change more frequently than standard quantities 62 Standard costs are divided into which of the following components? A Variance Standard and Quantity Standard B Materials Standard and Labor Standard C Quality Standard and Quantity Standard D Price Standard and Quantity Standard 63 A favorable cost variance occurs when A Actual costs are more than standard costs B Standard costs are more than actual costs C Standard costs are less than actual costs D None of the above 64 The total manufacturing cost variance consists of: A Direct materials price variance, direct labor cost variance, and fixed factory overhead volume variance B Direct materials cost variance, direct labor rate variance, and factory overhead cost variance C Direct materials cost variance, direct labor cost variance, variable factory overhead controllable variance D Direct materials cost variance, direct labor cost variance, factory overhead cost variance 65 Which of the following is not a reason standard costs are separated in two components? A the price and quantity variances need to be identified separately to correct the actual major differences B identifying variances determines which manager must find a solution to major discrepancies C if a negative variance is over-shadowed by a favorable variance, managers may overlook potential corrections D variances brings attention to discrepancies in the budget and requires managers to revise budgets closer to actual 66 The standard costs and actual costs for direct materials for the manufacture of 3,000 actual units of product are as follows: Standard Costs Direct materials (per completed unit) 1.04 kilograms @$8.75 Actual Costs Direct materials 2,500 kilograms @ $8 The amount of direct materials price variance is: A $2,250 unfavorable B $1,950 favorable C $1,875 favorable D $1,950 unfavorable 67 The standard costs and actual costs for direct materials for the manufacture of 2,500 actual units of product are as follows: Standard Costs Direct materials 2,500 kilograms @ $8 Actual Costs Direct materials 2,600 kilograms @ $8.75 The amount of the direct materials quantity variance is: A $875 favorable B $800 unfavorable C $800 favorable D $875 unfavorable 68 The following data relate to direct materials costs for November: Actual costs Standard costs What is the direct materials price variance? A $3,600 favorable B $160 favorable C $3,760 favorable D $3,600 unfavorable 4,700 pounds at $5.40 4,500 pounds at $6.20 69 The following data relate to direct materials costs for November: Actual costs Standard costs 4,700 pounds at $5.40 4,500 pounds at $6.20 What is the direct materials quantity variance? A $3,600 favorable B $1,240 favorable C $3,600 favorable D $1,240 unfavorable 70 If the actual quantity of direct materials used in producing a commodity differs from the standard quantity, the variance is termed a: A controllable variance B price variance C quantity variance D rate variance 71 If the price paid per unit differs from the standard price per unit for direct materials, the variance is termed a: A variable variance B controllable variance C price variance D volume variance 72 The following data is given for the Stringer Company: Budgeted production Actual production Materials: Standard price per ounce Standard ounces per completed unit Actual ounces purchased and used in production Actual price paid for materials Labor: Standard hourly labor rate Standard hours allowed per completed unit Actual labor hours worked Actual total labor costs Overhead: Actual and budgeted fixed overhead Standard variable overhead rate Actual variable overhead costs 26,000 units 27,500 units $6.50 228,000 $1,504,800 $22 per hour 6.6 183,000 $4,020,000 $1,029,600 $24.50 per standard labor hour $4,520,000 130 The total manufacturing cost variance is A the difference between actual costs and standard costs for units produced B the flexible budget variance plus the time variance C the difference between planned costs and standard costs for units produced D none of the above 131 Ruby Company produces a chair that requires yds of material per unit The standard price of one yard of material is $7.50 During the month, 8,500 chairs were manufactured, using 43,600 yards at a cost of $7.55 per yard Determine the (a) price variance, (b) quantity variance, and (c) cost variance (a) Price variance = ($7.50 - $7.55) x 43,600 = $2,180 unfavorable (b) Quantity variance = ((5 x 8,500) - 43,600) x $7.50 = $8,250 unfavorable (c) Cost variance = $10,430 unfavorable 132 Ruby Company produces a chair that requires yds of material per unit The standard price of one yard of material is $7.50 During the month, 8,400 chairs were manufactured, using 43,700 yards at a cost of $7.30 per yard Determine the (a) price variance, (b) quantity variance, and (c) cost variance (a) Price variance = ($7.50 - $7.30) x 43,700 = $8,740 favorable (b) Quantity variance = ((5 x 8,400) - 43,700)) x $7.50 = $12,750 unfavorable (c) Cost variance = $4,010 unfavorable 133 Ruby Company produces a chair that requires yds of material per unit The standard price of one yard of material is $7.60 During the month, 8,500 chairs were manufactured, using 40,000 yards at a cost of $7.50 Determine the (a) price variance, (b) quantity variance, and (c) cost variance (a) Price variance = ($7.60 - $7.50) x 40,000 = $4,000 favorable (b) Quantity variance = ((8,500 x 5) - 40,000) x $7.60 = $19,000 favorable (c) Cost variance = $23,000 favorable 134 Japan Company produces lamps that require 2.25 standard hours per unit at an hourly rate of $15.00 per hour If 7,700 units required 19,250 hours at an hourly rate of $14.90 per hour, what is the direct labor (a) rate variance, (b) time variance, and (c) cost variance? (a) Rate variance = ($15.00 - $14.90) x 19,250 = $1,925 favorable (b) Time variance = (19,250 - (7,700 x 2.25)) x $15.00 = $28,875 unfavorable (c) Cost variance = (19,250 x $14.90) - (7,700 x 2.25 x $15.00) = $26,950 unfavorable 135 Tippi Company produces lamps that require 2.25 standard hours per unit at an hourly rate of $15.00 per hour If 7,700 units required 17,550 hours at an hourly rate of $15.20 per hour, what is the direct labor (a) rate variance, (b) time variance, and (c) cost variance? (a) Rate variance = ($15.00 - $15.20) x 17,550 = $3,510 unfavorable (b) Time variance = (17,550 - (2.25 x 7,700)) x $15.00 = $3,375 unfavorable (c) Cost variance = (17,550 x $15.20) - ((2.25 x 7,700 x $15) = $6,885 unfavorable or $3,510 + $3,375 = $6,885 unfavorable 136 Trumpet Company produced 8,700 units of product that required 3.25 standard hours per unit The standard variable overhead cost per unit is $4.00 per hour The actual variance factory overhead was $111,000 Determine the variable factory overhead controllable variance (8,700 x 3.25 x $4.00) - $111,000 = $2,100 favorable 137 The Trumpet Company produced 8,700 units of a product that required 3.25 standard hours per unit The standard fixed overhead cost per unit is $1.20 per hour at 29,000 hours, which is 100% of normal capacity Determine the fixed factory overhead volume variance (29,000 hours - (8,700 units x 3.25 hours)) x $1.20 = $870 unfavorable 138 Oak Company produces a chair that requires yds of material per unit The standard price of one yard of material is $7.50 During the month, 8,500 chairs were manufactured, using 48,875 yards Journalize the entry to record the standard direct materials used in production Work in Process (8,500 x x $7.50) Direct Materials Quantity Variance ((48,875 - 51,000) x $7.50) Materials (48,875 x $7.50) 382,500.00 15,937.50 366,562.50 139 Prepare an income statement for the year ended December 31, 2012, through gross profit for Aframe Company using the following information Assume Aframe Company sold 8,600 units at $125 per unit (Note: Normal production is 9,000 units) Standard: yards per unit @ $6.30 per yard Standard: 2.25 hours per unit @ $15.00 Standard: Variable overhead $1.05 per unit Standard: Fixed overhead $211,500 (budgeted and actual amount) Actual yards used: 43,240 yards @ $6.25 per yard Actual hours worked: 19,100 @ $14.90 per hour Actual total factory overhead $235,500 Aframe Company Income Statement Through Gross Profit For the year ended December 31, 2012 Sales Cost of goods sold - at standard * Gross profit - at standard $1,075,000 772,280 302,720 Favorable Less variances from standard cost Direct materials price Direct materials quantity Direct labor rate Direct labor time Factory overhead controllable Factory overhead volume Unfavorable $2,162 $1,512 1,910 3,750 Gross profit - actual * (5 x $6.30) + (2.25 x $15.00) + $1.05 + ($211,500/9,000) = $89.90 x 8,600 units 14,970 9,400 18,060 284,660 140 If a company records inventory purchases at standard cost and also records purchase price variances, prepare the journal entry for a purchase of 6,000 widgets that were bought at $8.00 and have a standard cost of $8.15 Materials (6,000 x $8.15) Direct Materials Price Variance Accounts Payable (6,000 x $8.00) Dr 48,900 Cr 900 48,000 141 The following are inputs and outputs to the help desk Operator training Number of calls per day Maintenance of computer equipment Number of operators Number of complaints Identify whether each is an input or an output to the help desk Operator training - Input Number of calls per day - Output Maintenance of computer equipment - Input Number of operators - Input Number of complaints - Output 142 Greyson Company produced 8,300 units of their product that required 4.25 standard hours per unit Determine the standard fixed overhead cost per unit at 27,000 hours, which is 100% of normal capacity, if the favorable fixed factory overhead volume variance is $14,895 ( 27,000 - (8,300 x 4.25)) x $X = $14,895 favorable X = $1.80 143 Hsu Company produces a part with a standard of yds of material per unit The standard price of one yard of material is $8.50 During the month, 8,800 parts were manufactured, using 45,700 yards of material at a cost of $8.30 Required: Determine the (a) price variance, (b) quantity variance, and (c) cost variance (a) Price variance = ($8.50 - $8.30) x 45,700 = $9,140 favorable (b) Quantity variance = (45,700 - (5 x 8,800)) x $8.50 = $14,450 unfavorable (c) Cost variance = (45,700 x $8.30) - (8,800 x x $8.50) = $5,310 unfavorable 144 Aquatic Corp.’s standard material requirement to produce a single of Model 2000 is 15 pounds of material @ $110.00 per pound Last month, Aquatic purchased 170,000 pounds of material at a total cost of $17,850,000 They used 162,000 pounds to produce 10,000 units of Model 2000 Required: Calculate the material price variance and material quantity variance, and indicate whether each variance is favorable or unfavorable Actual cost = $17,850,000/ 170,000 pounds = $105 per pound Material price variance = ($105.00 – $110.00) x 170,000 = $850,000 favorable Material quantity variance = [162,000 – (15 x 10,000)] x $110.00 =$1,320,000 unfavorable 145 If a company records inventory purchases at standard cost and also records purchase price variances, prepare the journal entry for a purchase of widgets that were bought at $7.45 per unit and have a standard cost of $7.15 The total amount owed to the vendor for this purchase is $33,525 Materials (4,500 x $7.15) Direct Materials Price Variance Accounts Payable (X x $7.45) X= 4,500 units Dr 32,175 1,350 Cr 33,525 146 Rosser Company produces a container that requires yds of material per unit The standard price of one yard of material is $4.50 During the month, 9,500 chairs were manufactured, using 37,300 yards Required: Journalize the entry to record the standard direct materials used in production Work in Process (9,500 x x $4.50) Direct Materials Quantity Variance Materials (37,300 x $4.50) 171,000 3,150 167,850 147 The following data is given for the Taylor Company: Budgeted production Actual production Materials: Standard price per lb Standard pounds per completed unit Actual pounds purchased and used in production Actual price paid for materials Labor: Standard hourly labor rate Standard hours allowed per completed unit Actual labor hours worked Actual total labor costs Overhead: Actual and budgeted fixed overhead Standard variable overhead rate Actual variable overhead costs 1,000 units 980 units $2.00 12 11,800 $23,000 $14 per hour 4.5 4,560 $62,928 $27,000 $3.50 per standard labor hour $15,500 Overhead is applied on standard labor hours Compute the direct material price and quantity variances for Taylor Company Direct material price: $23,000 - ($2.00 x 11,800) = $600 F Direct material quantity variance: (11,800 - (980 x 12)) x $2.00 = $80 U 148 The following data is given for the Taylor Company: Budgeted production Actual production Materials: Standard price per lb Standard pounds per completed unit Actual pounds purchased and used in production Actual price paid for materials Labor: Standard hourly labor rate Standard hours allowed per completed unit Actual labor hours worked Actual total labor costs Overhead: Actual and budgeted fixed overhead Standard variable overhead rate Actual variable overhead costs 1,000 units 980 units $2.00 12 11,800 $23,000 $14 per hour 4.5 4,560 $62,928 $27,000 $3.50 per standard labor hour $15,500 Overhead is applied on standard labor hours Compute the direct labor rate and time variances for Taylor Company Direct labor rate: $62,928 - ($14.00 x 4,560) = $912 F Direct labor time variance: (4,560 - (980 x 4.5)) x $14.00 = $2,100 U 149 Define ideal and currently attainable standards Which type of standard should be used and why? Ideal standards are standards that are only achievable under perfect operating conditions Currently attainable standards (also called normal standards) allow for normal difficulties and mistakes They can be attained with reasonable effort Companies should use currently attainable standards as employees are more likely to put forth their best effort when standards are reasonable The use of ideal standards may have a negative impact on performance as they are likely to be viewed by employees as unrealistic 150 Define nonfinancial performance measures What are they used for and what are some common examples? Nonfinancial performance measures evaluate performance in a measure other than dollars They are used to evaluate the time, quality or quantity of a business activity and bring additional perspective to performance evaluation Common examples include: Inventory turnover; Percent of on-time delivery; Employee satisfaction; and Number of customer complaints 151 Match the following terms with the best definition given An example is number of customer complaints Normal standard Actual cost < standard cost at actual volumes Theoretical standard Actual cost > standard cost at actual volumes Nonfinancial performance measure Unfavorable cost variance Favorable cost variance Currently attainable standard Ideal standard 152 Match the following terms with the best definition given Standard variable overhead for actual units produced (Actual direct hours - Standard direct hours) x Standard Rate per Hour (Actual price - Standard price) x Actual quantity (Actual rate per hour - Standard rate per hour) x Actual hours (Actual quantity - Standard quantity) x Standard Price Direct labor time variance Direct labor rate variance Direct materials price variance Direct materials quantity variance Budgeted variable factory overhead 153 Compute the standard cost for one hat, based on the following standards for each hat: Standard Material Quantity: Standard Labor: Factory Overhead: 3/4 yard of fabric at $5.00 per yard hours at $5.75 per hour $3.20 per direct labor hour Standard Material: Standard Labor: Factory Overhead: Total standard cost 3/4 yard at $5.00 per yard hours at $5.75 per hour hours at $3.20 per hour $ 3.75 11.50 6.40 $21.65 154 Standard and actual costs for direct materials for the manufacture of 1,000 units of product were as follows: Actual costs Standard costs 1,550 lbs @ $9.10 1,600 lbs @ $9.00 Determine the (a) quantity variance, (b) price variance, and (c) total direct materials cost variance (a) Actual quantity Standard quantity Quantity variance favorable ´ standard price (b) Actual price Standard price Price variance ´ actual quantity 1,550 lbs 1,600 lbs 50 lbs favorable $ 9.00 $ 450 favorable $ 9.10 per lb 9.00 per lb $ 10 per lb unfavorable 1,550 $ 155 unfavorable (c) Quantity variance Price variance Total direct materials cost variance $ 450 favorable 155 unfavorable $ 295 favorable 155 Standard and actual costs for direct labor for the manufacture of 1,000 units of product were as follows: Actual costs Standard costs 950 hours @ $37.00 975 hours @ $36.00 Determine the (a) time variance, (b) rate variance, and (c) total direct labor cost variance (a) Actual time Standard time Time variance favorable ´ standard rate (b) Actual rate Standard rate Rate variance unfavorable ´ actual time (c) Time variance Rate variance Total direct labor cost variance 950 hours 975 hours 25 hours $ 36 $ 900 favorable $37.00 per hour 36.00 per hour $ 1.00 per hour 950 $ 950 unfavorable $900 favorable 950 unfavorable $ 50 unfavorable 156 The following information is for the standard and actual costs for the Happy Corporation Standard Costs: Budgeted units of production - 16,000 (80% of capacity) Standard labor hours per unit - Standard labor rate - $26 per hour Standard material per unit - lbs Standard material cost - $ 12 per pound Standard variable overhead rate - $15 per labor hour Budgeted fixed overhead - $640,000 Fixed overhead rate is based on budgeted labor hours at 80% capacity Actual Cost: Actual production - 16,500 units Actual material purchased and used - 130,000 pounds Actual total material cost - $1,600,000 Actual labor - 65,000 hours Actual total labor costs - $1,700,000 Actual variable overhead - $1,000,000 Actual fixed overhead - $640,000 Actual variable overhead - $1,000,000 Determine: (a) the quantity variance, price variance, and total direct materials cost variance; (b) the time variance, rate variance, and total direct labor cost variance; and (c) the volume variance, controllable variance, and total factory overhead cost variance (a) Quantity variance: Actual quantity ´ standard price: 130,000 ´ $12 = Standard quantity ´ standard price: 16,500 ´ ´ $12 = Quantity variance (favorable) $ 1,560,000 1,584,000 $ 24,000 Price variance: Actual total price Actual quantity ´ standard price: 130,000 ´ $12 = Price variance (unfavorable) $ 1,600,000 1,560,000 $ 40,000 Total direct material cost variance: Price variance (unfavorable) Quantity variance (favorable) Total (unfavorable) $ 40,000 24,000 $ 16,000 (b) Time variance: Actual hours ´ standard rate: 65,000 ´ $26 = Standard hours ´ standard rate: 16,500 ´ ´ $26 = Time variance (favorable) $ 1,690,000 1,716,000 $ 26,000 Rate variance: Actual labor costs Actual hours ´ standard rate 65,000 ´ $26 = rate variance (unfavorable) $ 1,700,000 1,690,000 $ 10,000 Total direct labor cost variance: Time variance (favorable) Rate variance (unfavorable) Total (favorable) $ 26,000 10,000 $ 16,000 (c) Volume variance: Actual fixed overhead Applied fixed overhead (16,500 ´ 4) ´ ($640,000/64,000) = Volume variance (favorable) $ 640,000 660,000 $ 20,000 Controllable variance: Actual variable overhead Applied variable overhead (16,500 ´ 4) ´ $15 = Controllable variance (unfavorable) $ 1,000,000 990,000 $ 10,000 Total factory overhead cost variance: Volume variance (favorable) Controllable variance (unfavorable) Total (favorable) $ 20,000 10,000 $ 10,000 157 The Finishing Department of Pinnacle Manufacturing Co prepared the following factory overhead cost budget for October of the current year, during which it expected to operate at a 100% capacity of 10,000 machine hours: Variable cost: Indirect factory wages Power and light Indirect materials Total variable cost Fixed cost: Supervisory salaries Depreciation of plant and equipment Insurance and property taxes Total fixed cost Total factory overhead $18,000 12,000 4,000 $34,000 $12,000 8,800 3,200 24,000 $58,000 During October, the plant was operated for 9,000 machine hours and the factory overhead costs incurred were as follows: indirect factory wages, $16,400; power and light, $10,000; indirect materials, $3,000; supervisory salaries, $12,000; depreciation of plant and equipment, $8,800; insurance and property taxes, $3,200 Prepare a factory overhead cost variance report for October (The budgeted amounts for actual amount produced should be based on 9,000 machine hours.) Pinnacle Manufacturing Co - Finishing Department Factory Overhead Cost Variance Report For Month Ended October 31, 20-Productive capacity for the month Actual production for the month Variable cost: Indirect factory wages Power and light Indirect materials Total variable cost Fixed costs: Supervisory salaries Depreciation of plant and equipment Insurance and property taxes Total fixed cost Total factory overhead cost Total controllable variances Net controllable variance favorable Volume variance unfavorable: Idle hours at the standard rate for fixed overhead-1,000 ´ $2.40 Total factory overhead cost variance unfavorable 10,000 hours 9,000 hours Budget Actual $16,200 10,800 3,600 $30,600 $16,400 10,000 3,000 $29,400 $12,000 $12,000 8,800 8,800 3,200 $24,000 3,200 $24,000 $54,600 $53,400 Variances Favorable Unfavorable $ 200 $ 800 600 $1,400 $ 200 $1,200 2,400 $1,200 158 The following information relates to manufacturing overhead for the Chapman Company: Standards: Total fixed factory overhead - $450,000 Estimated production - 25,000 units (100% of capacity) Overhead rates are based on machine hours Standard hours allowed per unit produced - Fixed overhead rate - $9.00 per machine hour Variable overhead rate - $3.50 per hour Actual: Fixed factory overhead - $450,000 Production - 24,000 units Variable overhead - $170,000 Required: (a) (b) (c) Compute the volume variance Compute the controllable variance Compute the total factory overhead cost variance (a) Productive capacity of 25,000 units Standard for product produced (24,000 units) Productive capacity not used Standard fixed factory overhead cost rate Volume variance (unfavorable) (b) Actual Variable overhead incurred Budgeted factory overhead for standard units product produced (applied) 24,000 ´ ´ $3.50 = Controllable variance (unfavorable) (c) Volume variance (unfavorable) Controllable variance (unfavorable) Cost variance (unfavorable) 50,000 hours 48,000 hours 2,000 hours $ 9.00 per hour $18,000 $170,000 168,000 $ 2,000 $18,000 2,000 $20,000 159 Using the following information, prepare a factory overhead flexible budget for Andover Company where the total factory overhead cost is $75,500 at normal capacity (100%) Include capacity at 75%, 90%, 100%, and 110% Total variable cost is $6.25 per unit and total fixed costs are $38,000 The information is for month ended August 31, 2012 (Hint: Determine units produced at normal capacity.) Andover Company Factory Overhead Cost Budget For the Month Ending August 31, 2012 Percent of normal capacity Units produced 75% 4,500 90% 5,400 100% X 110% 6,600 Variable costs per unit $6.25 Fixed costs Total factory overhead cost $28,125 38,000 $66,125 $33,750 38,000 $71,750 $37,500 38,000 $75,500 $41,250 38,000 $79,250 X=$37,500/$6.25 X= 6,000 units 160 Prepare an income statement (through income before income tax) for presentation to management, using the following data from the records of Greenway Manufacturing Company for November of the current year: Administrative expenses Cost of goods sold (at standard) Direct materials quantity variance-favorable Direct materials price variance-favorable Direct labor time variance-unfavorable Direct labor rate variance-favorable Factory overhead volume variance-unfavorable Factory overhead controllable variance-favorable Sales Selling expenses $ 73,500 470,000 1,200 2,400 900 500 10,000 1,500 950,000 165,800 Greenway Manufacturing Company Income Statement For Month Ended November 30, 20-Sales Cost of goods sold at standard Gross profit at standard Less variances from standard cost: Direct materials price Direct materials quantity Direct labor rate Direct labor time Factory overhead controllable Factory overhead volume Gross profit Operating expenses: Selling expenses Administrative expenses Income before income tax $950,000 470,000 $480,000 Favorable $2,400 1,200 500 Unfavorable 900 1,500 10,000 $165,800 73,500 5,300 $474,700 239,300 $235,400 161 Robin Company purchased and used 520 pounds of direct materials to produce a product with a 510 pound standard direct materials requirement The standard materials price is $2.10 per pound The actual materials price was $2.00 per pound Prepare the journal entries to record (1) the purchase of the materials and (2) the material entering production Robin records standards and variances in the general ledger Materials (520 x $2.10) Direct Materials Price Variance Accounts Payable (520 x $2.00) 1,092 Work in Process (510 x $2.10) Direct Materials Quantity Variance 1,071 21 52 1,040 Materials 1,092 162 Robin Company purchased and used 500 pounds of direct materials to produce a product with a 520 pound standard direct materials requirement The standard materials price is $1.90 per pound The actual materials price was $2.00 per pound Prepare the journal entries to record (1) the purchase of the materials and (2) the material entering production Robin records standards and variances in the general ledger Materials (500 x $1.90) Direct Materials Price Variance (500 x $0.10) Accounts Payable (500 x $2.00) 950 50 Work in Process (520 x $1.90) Direct Materials Quantity Variance Materials 988 1,000 38 950 ... difference between A actual costs - standard costs B standard costs - actual costs C (actual quantity * standard price) - standard costs D actual costs - (standard price * standard costs) 101 Which of... difference between A actual costs - (actual quantity * standard price) B actual cost + standard costs C actual cost - standard costs D (actual quantity * standard price) -standard costs 100 The formula... difference between A actual costs - standard costs B actual costs + standard costs C (actual hours * standard rate) - standard costs D actual costs - (actual hours * standard rate) 99 The formula